A subsidy race would be counterproductive.
(Photo: ddp/Sipa USA)
Dusseldorf Rarely has the European Union been so dependent on good relations with the USA as it is now. Nothing has made the security policy inability and the astonishing dependency of the continent, which longs for geopolitical sovereignty so much after the experience with Donald Trump, clearer than the Ukraine war.
President Joe Biden knows this. However, he is not taking advantage of the situation. In the dispute over the law with the misleading name “Inflation Reduction Act”, he is willing to compromise and shows EU Commission President Ursula von der Leyen ways that could weaken the part that discriminates against foreign investors, at least for Europeans – for example via a raw materials agreement or a special solution for European leasing e-cars.
In both cases, the point is that the European partners benefit from IRA subsidies totaling $370 billion. So far so good.
However, Europeans should have no illusions that Biden’s concessions will not come at a price. The plans related to the IRA are greater for the US than the importance of the transatlantic relationship.
First, with his green turn, Biden is aiming for the biggest overhaul of the US economy in decades. In fact, the President is already creating a spirit of optimism that could go hand in hand with a sustained strengthening of the largest economy in the long term. Second, this restructuring is a central component of Biden’s containment strategy towards China – which lacks nothing in radicalism towards Trump.
The interests in China policy are different
Biden expects Europe to do its part. The main issue here is the increasingly aggressive technology ban on China. The problem: Here the interests are quite different. While the US wants to cut China off from Western high technology, the Europeans want to reduce dependencies in sensitive areas.
In Washington, von der Leyen spoke explicitly of “de-risking”, not of decoupling. The “commodities club” is supposed to break Beijing’s monopoly on the rare earths market.
As for the subsidies themselves, the Americans say that if the IRA bothers them that much, the Europeans may take action themselves. But an expensive and unproductive subsidy race is not in the economic interests of Europe and the transatlantic partners.
Just as little as hectic reactions to the subject of state aid law. The fact that the EU is effectively suspending the rules for granting subsidies until 2025 will at best lead to a harmful internal subsidy race. Such a policy undermines the single market with its level playing field, which is exactly what makes Europe strong.
The USA doesn’t only lure with subsidies
No one doubts that Europe too needs to rebuild its economy, but not as a reaction to the IRA. European and especially German companies will also benefit from the restructuring of the US economy. And when companies relocate to the United States, it’s not so much the subsidies that attract them, but rather low taxes, less bureaucracy and, above all, cheap energy.
In any case, the European subsidy register is long enough overall – and IRA makes up for at best part of what the EU countries have already achieved in the field of green tech.
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